Trust Company Settles Charges for Unregistered Securities Activity and Related Misstatements

A trust company settled SEC charges for (i) conducting securities transactions without registering as a broker-dealer and taking steps to conceal its unregistered activities and (ii) making misleading statements regarding a service that allowed investors to create an irrevocable trust online. Two affiliated principals were also charged with aiding and abetting the violations.

According to the Order, the SEC found that the trust company used its own personnel and systems to place mutual fund orders directly with a clearing agency while making it seem like the transactions were routed through the company's affiliated broker-dealer. The SEC said that the broker-dealer did not handle trades or review trading activity, but entered into a services agreement with the clearing agency that allowed the broker-dealer to collect Exchange Act Rule 12b-1 ("Registration and reporting — General — Scope of regulation") fees. The SEC found that the broker-dealer transferred the majority of the Rule 12b-1 fees back to the trust company, although the trust company had represented that its basic plan had no annual fee despite keeping Rule 12b-1 fees.

The SEC determined that the company violated Exchange Act Section 15(a) ("Registration and regulation of brokers and dealers") and Section 17(a)(2)-(3) ("Records and reports"). The SEC also determined that the company's CEO violated Exchange Act Section 17(a)(2)-(3).

To settle the charges, the company agreed to (i) cease and desist, (ii) a civil monetary penalty of $225,000 and (iii) disgorgement of $101,700 and prejudgment interest of $20,099. The two principals agreed to (i) cease and desist, (ii) a prohibition against acting as a principal of an SEC-registered entity and (iii) civil monetary penalties of $75,000 and $40,000, respectively.